Is it a loophole if it increases taxes?

April 25th, 2013 by Joe Kristan

20130425-2Janet Novack reports on a study by the leftish advocacy group Citizens for Tax Justice:   Stock Options Meant Big Tax Savings For Apple And JPMorgan,  As Well As Facebook .  The CTJ report calls stock option compensation deductions a “loophole.”

But it’s not.  As Ms. Novack points out, “…it’s not like Uncle Sam is getting stiffed. That’s because the executive  must report the same amount deducted by the company as ordinary income.”  What’s more, the payments result in collection of the 2.9% Medicare tax on taxable compensation — 3.8% starting in 2013.  That means total government revenues are actually higher as a result of the options than if the payments were not made.

But the propagandists at CTJ would be delighted to tax both the payor and payee on the same income, as would their Congressional allies, like Michigan Senator Levin.

The stock option “loophole” is actually an evolved response to another stupid populist tax provision:  the Section 162(m) $1 million cap on deductible cash compensation for public companies.  The cap doesn’t apply to the execs’ option income, so naturally when the market calls for compensation over $1 million, it flows to a vehicle that provides a full deduction.

If they shut the option “loophole” — unlikely — the money will find another one.  Yet foolish congresscritters want to expand the $1 million cap to options.  Heaven forfend that they undo their old mistake and stop micromanaging executive compensation through the tax law.